# U ni te d S ta te s Co ur t of A pp ea ls

For the Eig hth Circu it

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No. 1 6- 39 49

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Ch arl een Co rrad o, In di vi du al ly and as t he Exec ut rix of t he Est at e o f Jo hn M

Co rrad o; Fed eral Cit y

Reg io n, In c.

ll ll ll ll ll ll ll ll ll ll l Pla in ti

ff s - Ap pe ll an ts

v.

Life Inv es to rs Ins ur an ce Co m pa ny of Am eri ca; Set h M il le r; P at ric k M el ch ert ;

Kev in Cri st ; Fr an k Nee la nd , Jr.; Mark Thi el ; An dr ew Mar ti n

ll ll ll ll ll ll ll ll ll ll l Defe nd

an ts - App el le es

__ __ __ __ __ __

App eal fro m

Uni te d S ta te s Di st ric t Co ur t

fo r th e Nor th ern Dis tri ct of I owa - Ced ar Ra pi ds

__ __ __ __ __ __

Su bm it te d: Octo be r 18 , 20 17

Fil ed : J an ua ry

2, 2 01 8

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Befo re WOL LMAN, BEAM, an d S HEPHERD, Circ ui t J ud ge s.

__ __ __ __ __ __

SHEPHERD, Cir cu it Ju dg e.

I n th is m os t rece nt in st al lm en t of th e li ti gi ou s hi st or y of th e Life In ve st or s

Owner s Part ic ip at io n Trus t, Ch arl een Co rrad o an d Fed eral Ci ty Reg io n, In c. (“ FCR” )

br ou gh t su it ag ai ns t a nu m be r of de fen da nt s as so ci at ed wit h th e Trus t, al le gi ngbr each es of fi d u ci ary du ti es an d co nv ers io n. The di st ric t co ur t gr an te d su m m ary 1

jud gm en t t o t he de fen da nt s, an d C or rad o a nd FCR a pp eal . W e aff irm.

I. Back gr ou nd

As reco un te d in o ur pr ev io us op in io n, Jo hn Co rrad o an d FCR be cam e 2

as so ci at ed wit h Life Inv es to rs In su ran ce Co m pa ny of Am eri ca (“ Life In ve st or s” ) in

19 77

. Co rrad o so ld Life In ve st or s’s in su ran ce po li ci es on a co m m is si on ba si s, an d, 3

as a res ul t, Co rrad o an d FCR were a b le to m ai nt ai n acco un ts in a pe ns io n pl an

es ta bl is he d by Life In ve st o r s

— t h e Life In ve st or s Owner s Part ic ip at io n Trus t (th e

“ Trus t” ).

In 2 0 0 8

, J o h n Co rrad o an d FCR fil ed a la wsu it in th e Dis tri ct of Mar y la nd 4

ag ai ns t Life In ve st or s, th e Li f e In ve st or s Owner s Part ic ip at io n Trus t an d Pl an

, an d

it s tru st ees —J o h n C l eav en ge r, Kev in Cri st

, Mi ke Kirb y

, Fran k Kne el an d, W il li am

Kue nn en

, R. Jo e Sm it h, and Mar k Thie l. In th at su it

, Co rrad o an d FCR al le ge d si x 5

co un ts : th e fir st th ree al le ge d th at th e Trus te es br each ed th ei r fid uc ia ry du ti es ; Co un t

IV al le ge d th at Life In ve st or s kn ow in gl y pa rti ci pa te d in th e br each es al le ge d in

The Hon or ab le Ed w ard J. McM an us

, Uni te d St at es Dis tri ct Ju dg e fo r th e 1

Nor th ern Dis tri ct of I owa , no w dec eas ed

.

FCR was creat ed by Joh n C or rad o t o m ark et Life In ve st or s’s po li ci es

, an d it 2

is a pa rti ci pa nt be ne fic ia ry of t he Trus t.

The ir or ig in al as so ci at io n was act ua ll y wit h Ban ke rs Uni on Li f e A ss ur an ce 3

Co m pa ny—Life In ve st or s’s pr ed eces so r—b ut we refe r so le ly to Life In ve st or s

be cau se th at pa rty was act in g a t al l t im es rel ev an t t o t hi s ca se

.

Sh or tl y aft er h e fi le d t ha t la wsu it , J oh n Co rrad o di ed

. His wid ow, Ch arl een 4

Co rrad o, was su bs ti tu te d as a pa rty du e to he r ro le as pe rs on al rep res en ta ti ve fo r hi s

es ta te

.

W e ref

er t o t he se in di vi du al de fen da nt s as th e “ Trus te es .” 5

-2

-Co un ts I th ro ug h III; Co un t V al le ge d th at th e Trus te es fai le d to pr ov id e ap pr op ria te

do cu m en ta ti on to pa rti ci pa nt s; an d C ou nt VI all eg ed th at th e Tru st ees un jus ti fia bl y

refu se d to al lo w Co rrad o to wit hd raw th e m on ey in hi s acco un t. The Mar y la nd co ur t

gr an te d su m

m ary jud gm en t to th e de fen da nt s, an d Co rrad o di d no t ap pe al th at ru li ng

.

Life In ve st or s adv an ced m on ey to th e Trus te es to pa y fo r th e le ga l exp en se s rela te d

to th e d efen se of t hi s ac ti on

.

Dur in g th e pe nd en cy of th e Mar y la nd su it

, Life In ve st or s fil ed a la wsu it ag ai ns t

Co rrad o an d FCR in th e Dis tri ct of Io wa, al le gi ng th at Co rra do ha d br each ed a

se tt le m en t agre em en t bet ween th e pa rti es

. Afte r th e di st ric t cou rt gra nt ed su m m ary

jud gm en t to Life In ve st or s in th at cas e, th is co ur t rev ers ed an d rem an de d ba se d on th e

di st ric t co ur t’s m is ap pl ic at io n of Io wa la w. See Life Inv ’rs In s. Co . o f Am . v . F ed

.

Ci ty Reg io n, In c., 68 7 F.3 d 11 17 (8 th Ci r. 2 0 1 2 )

. Afte r rem an d, th e di st ric t co ur t

ag ai n en te red s u mm a r y jud gm en t in fav or of Life In ve st or s, an d we affi rm ed

. See

Life In v’rs In s. Co

. of A m. v

. Co rrad o, 80 4 F.3 d 90 8 (8 th Ci r. 20 15 ). The fin al

ou tc om e of th e Io wa li ti ga ti on was a $1 .3 m il li on jud gm en t in fav or of Life In ve st or s

ag ai ns t bo th Co rr a d o a n d FCR, whi ch FCR sa ti sf ie d by as si gn in g su ffi ci en t fu nd s

fro m it s Tru st acco un t t o Li fe In ve st or s.

Life In ve st or s t he n s en t an em ai l t o t he Trus te es in fo rm in g th em of it s de si re

to be rei m

bu rs ed fo r th e co st s a d v a n c e d in de fen se of th e Mar y la nd la wsu it

. Thi s

res ul t, Life In ve st or s ex pl ai ne d, was au t h o r i z e d by Trus t § 11 .9, whi ch st at es as

fo ll ows :

The Trus te es sh al l ha ve a li en up on th e Trus t A s s e t s fo r an y co st s an d

at to rn ey s’ fees

, in th e ev en t of an y su it or pr oc eed in g reg ard in g th e Trus t

to whi ch th e Trus te es

, or an y of th em

, m ay be pa rti es or a pa rty. If any

Part ic ip an t or be ne fic ia ry br in gs le ga l act io n ag ai ns t th e Trus te es

, or an y

of th em

, th e r e s u l t of whi ch sh al l be ad ve rs e to th e pa rty br in gi ng th e

su it

, or i f an y di sp ut es ari se wit h res pe ct to th e pe rs on or pe rs on s to

who m de li ve ry or pa y

m en t of an y pr op ert y sh al l be m ad e by th e

-3

-Trus te es

, th e co st to th e Trus te es of de fen di ng th e su it sh al l be ch arg ed

,

to th e ex te nt po ss i b l e

, d ire ct ly to th e acco un t of th e Part ic ip an t who se

in te res t is in is su e, an d o nl y th e ex ces s, if an y , s ha ll be in cl ud ed in th e

ex pe ns es of t he Trus t.

The Trus te es un an imo u s l y v o te d to en fo rce § 11 .9, an d th ey de du ct ed

$4 31 ,92 5.4 9— th e co st of th e de fen se in th e M a r yl a nd li ti ga ti on —fr om th e Trus t

acco un ts of Co rrad o an d FCR. In tu rn

, th e Trus te es pa id th is m on ey to Life In ve st or s

as rei m bu rs em en t of m on ey ad va nc ed i n d e fen di ng th e Trus te es in th e Mar y la nd

act io n.

In Ju ly of 20 14

, Co rrad o an d FCR br ou gh t th e in st an t la wsu it in th e Dis tri ct of

Io wa ag ai ns t th e Trus te es an d Life I n v es to rs

, al le gi ng th at th e Trus te es ’ act io ns in

de du ct in g th e fu nd s fro m Co rrad o’s an d FCR’s Trus t acco un ts co ns ti tu te d br each es

of fid uc ia ry du ti es an d co nv ers io n. Afte r di sc ov ery, bo th pa rti es m ov ed fo r su m m ary

jud gm en t, an d t h e di st ric t co ur t gr an te d su m m ary jud gm en t to th e de fen da nt s.

Co rrad o a nd FCR n ow ap pe al th is rul in g.

II. Ana lysis

The ap pe ll an ts rai s e t w o p r im ary is su es

. Fi rs t, whe th er th e di st ric t co ur t

co rrec tl y co nc lu de d th at Trus t § 11 .9 au th or iz ed th e Trus te es to de du ct fu nd s fro m th e

ap pe ll an ts ’ Trus t ac co un ts to rei m bu rs e Life In ve st or s for th e m on ey it ad va nc ed to

pa y fo r th e de fen se in th e Mar y la nd li ti ga ti on

. And se co nd

, whe th er th e di st ric t co ur t

erro ne ou sl y co nc lu de d th at th e Trus te es di d no t br each th ei r fid uc ia ry du ti es whe n

th ey (1 ) tra ns ferr ed th e ap pe ll an ts ’ fu nd s to Life In ve st or s, (2 ) al le ge dl y de pr iv ed th e

ap pe ll an ts of a ve st ed in te res t in Trus t ass et s, or (3) fai le d to pr ov id e no ti ce pri or to

tra ns ferr in g th e fu nd s. In ad di ti on

, th e ap pe ll an ts co nt en d th at th e di st ric t co ur t

ov erl oo ke d a di sp ut e o f m at eri al fact as t o th e reas on ab le ne ss of th e at to rn ey ’s fees

de du ct ed fro m th ei r Trus t acco un ts

, an d th ey arg ue th at Life In ve st or s co m m it te d th e

to rt of co nv ers io n. Exe rci si ng de no vo rev ie w, se e Gil ke rs on v. N e b

. Co lo cat io n

-4

-Ct rs ., LLC, 859 F.3d 11 15 , 11 18 (8t h C ir. 2 01 7) , we add res s ea ch arg um en t i n t ur n

an d a ffi rm

th e g ran t o f su m

m ary jud gm en t t o t he ap pe ll ees

.

A.

The ap pe ll an ts at ta ck th e ap pl ic ab il it y of Trus t § 11 .9 by arg ui n g th at th e

Mar y la nd laws ui t was no t a s ui t ag ai ns t t he Trus te es an d t ha t t he Trus te es were n ot

ch arg ed fo r th e de fen se in th at cas e. The ap pe ll an ts fu rth er arg ue th a t a d i f f eren t

se ct io n of th e Tru st pre cl ud es th e u se of Trus t fu nd s to pa y fo r th e de fen se be cau se

de fen se co st s wer e ad va nc ed by L ife Inv es to rs . W e d is ag ree.

“ On acce pt an ce of a tru st

, th e tru st ee sh al l ad m in is te r th e tru st acco rd in g to th e

te rm s of th e tru st an d acco rd in g to th is tru st co de

, ex cep t to th e ex te nt th e te rm s of th e

tru st pr ov id e ot he rwis e.” Io wa Co de § 63 3A.4 20 1( 1)

. In de ed

, “ [t]he te rm s of a tru st

sh al l al way s co nt ro l an d ta ke pr eced en ce ov er an y se ct io n of th is tru st co de to th e

co nt rary.” Id

. § 63 3A.1 10 5. In Io wa, “ in te rp ret at io n of a tru st is gu id ed by th e in te nt

of th e te st at or .” In re St ei nb erg Fam il y Liv in g Tr., 89 4 N.W .2d 46 3, 46 8 (Io wa

20 17 ). And Io wa co ur ts “ de te rm in e in te nt ba se d on th e la ng ua ge of t he tru st it se lf,

ut il iz in g t he ord in ary an d u su al m ean in g o f th e wor ds in cl ud ed .” Id

.

The pl ai n la ng ua ge of Trus t § 11 .9 de sc rib es two si tu at io ns in whi ch th e Trus t

pe rm it s th e Trus te es to ch arg e th e acco un t of a pa rti ci pa nt or be ne fic ia ry : (1 ) whe n

“ an y Part i c i p a n t o r be ne fic ia ry br in gs le ga l act io n ag ai ns t th e Trus te es

, or an y of

th em

, th e res ul t of whic h sh al l b e ad ve rs e to th e p art y br in gi ng th e su it ,” an d (2) “ if

an y di sp ut e sh al l ari se wit h res pe ct to th e pe rs on or pe rs on s to who m d e l i v e r y o r

pa y m en t o f an y

pro pe rty sh al l b e m ad e b y th e Tru st ees .”

The Mar y la nd su it tri gg e r e d t h e fir st Trus t pr ov is io n, whi ch pe rm it s th e

Trus te es to ch arg e th e le ga l fe es to th e acco un t of a pa rti ci pa nt

. The ap pe ll an ts are

pa rti ci pa nt s who br ou gh t, an d lo s t

, a le ga l act io n ag ai ns t th e Trus te es

. The

-5

-ap pe ll an ts ’ fir st co nt en ti on —t ha t th e Mar y la nd la wsu i t was no t ag ai ns t th e

Trus te es —i s be li ed by th at cas e’s op erat iv e co m pl ai nt

. In pa rag rap hs 12 th ro ug h 18

of th at co m

pl ai nt —wh ic h id en ti fie d who he was su in g— Jo hn Co rrad o id en ti fie d th e

in di vi du al Trus te es of th e Trus t, and

, in pa rag rap h 19

, he co ll ect iv el y de fin ed all of

t ho se in di vi du al Trus te es as th e “ Defen da nt Trus te es .” As st at ed ab ov e, C o r r a d o

pu rs u e d s i x t h eo rie s of rel ie f. Co un ts I th ro ug h III al le ge d th at th e Defen da nt

Trus te es br each ed th ei r fid uc ia ry du ti es in di ffer en t way s; Co un t IV al le ge d th at Life

In ve st or s kn owi ng ly pa rti ci pa te d in an d be ne fit te d fro m th o s e b reac he s; Co un t V

al le ge d t ha t t he Defen da nt Trus te es fai le d t o p ro vi de do cu m en ta ti on to pa rti ci pa nt s

in vi ol at io n of ERISA; an d Co un t VI al le ge d tha t the Defen da nt Trus te es un jus ti fia bl y

refu se d Co rrad o’s wit hd rawal req ue st s. The refo re, be cau se fiv e of th e si x co un ts

were as se rte d di rect ly ag ai ns t th e Trus te es an d th e act io n was de ci de d in th ei r fav or

,

th e ex pr es s te rm s of Trus t § 11 .9 di rect th at “ th e co st to th e Trus te es of de fen di ng th e

su it sh al l be ch arg ed

, to th e ex te nt po ss ib le

, di r ect ly to th e acco un t[s ] of ” th e

ap pe ll an ts

.

The ap pe ll an ts ne x t a s s e r t th at § 11 .9 is in ap pl ic ab le be cau se

, as a fact ua l

m at te r, th ere was no co st to th e Trus te es fo r de fen di ng th e Mar y la nd su it be cau se Life

In ve st or s ad va nc ed th e co st s of th e Trus te es ’ de fen se

. As ev id en ti ary s u p p o r t

, th e

ap pe ll an ts qu ot e th e ap p e l l e e s ’ s ta te m en t of fact “ th at no Trus t as se ts were us ed to

pa y at to rn ey [s ic ] fees whi le [th e Mar y la nd Cas e] was on go in g,” App el la nt s’ Br. 28

(al te rat io n in or ig in al ) (in te rn al qu ot at io n m ark s om it te d) , a nd th e affi da vi t of Ju li e

W il li ng ha m

, in whi ch sh e st at ed t h a t “n o d is tri bu ti on ha s be en m ad e or req ue st ed

fro m Gro up Ann ui ty Co nt ract Y74 55 2 to pa y a ny co st s or fees as so ci at ed wit h th is

Mar y la nd la wsu it ,” App el la nt s’ App

. 35 -3 6. The se st at em en ts

, whi le accu rat e, are 6

irr el ev an t to th e pr es en t cas e. In de ed , h ad th e Trus te es us e d Tr u s t fu nd s to pa y fo r

W il li ng ha m ’s affa da vi t is da te d Ju ne 24

, 20 10

, an d th e Mar y la n d l i ti ga ti on 6

was no t term in at ed un ti l t ha t co ur t g ran te d su m m ary jud gm en t to th e de fen da nt s on

Mar ch 11 , 20 11

.

-6

-th e de fen se du r i n g th e pe nd en cy of th e la wsu it

, th ey arg ua bl y wou ld ha ve vi ol at ed

Trus t § 11 .9, whi ch se ts as a co nd it io n pr eced en t to ch arg i n g t he pa rti ci pa nt s’

acco un ts th at th e ul ti m at e ou tc om e of th e li ti ga ti on is “ ad ve rs e to th e pa rty br in gi ng

th e su it .” The refo re, th e li ti ga ti on m us t be at an en d pr io r to th e Trus te es us in g Trus t

fu nd s t o p ay

th e co st of t he ir d efen se

.

F u r t h e r

, we fin d th at th e Trus te es di d in de ed in cu r “ co st ” in th e fo rm of

at to rn ey ’s fees in de fen di ng th e Mar y la nd act io n un su cces sf ul ly br ou gh t by Co rrad o

an d FCR. Tha t Life In ve st or s ad va nc ed at to rn ey ’s fees in cu rred by th e Trus te es is of

no m o men t

. Th e Trus te es were en ti tl ed to a de fen se in th e Mar y la nd act io n, an d

reg ard le ss of whe th er th os e fees were ad va nc ed by Life In ve st or s or an ot he r pa rty or

in it ia ll y pa id by the Trus te es th em se lv es , t he Trus te es m ay ch arg e su ch su m s t o t he

ap pe ll an ts ’ acco un ts

.

Rel at ed ly, th e ap pe ll an ts as s e r t th at Trus t § 11 .10 ex pr es sl y pr ecl ud es th e

Trus te es fro m pa y in g at to rn ey ’s fees ou t of Trus t as se ts whe n Life In ve st or s in it ia ll y

pa y s t he m . Sect io n 1 1.1 0 re ad s as fol lo ws:

To th e ex te nt no t pa id by th e Part ic ip at in g Co m pa ni es

, th e Trus te es sh al l

ha ve th e po wer to pa y fro m th e Trus t Ass et s al l rea s o n a bl e an d

ne ces sa ry ex pe ns es

, ta xe s an d ch arg es

, an d fees fo r co un se l in cu rred in

co nn ect io n wit h t h e a d mini st rat io n or op erat io n of th e Trus t. The

Trus te es he reu nd er sh al l se rv e wit ho ut co m pe ns at io n fo r th ei r se rv ic es

.

The ap pe ll ees c o u n t e r by n ot in g th at th e li m it at io n in § 11 .10 —“ [t]o th e ex te nt no t

pa id by th e Part ic ip at in g Co m pa ni es ”—i s no t fo un d in § 11 .9, an d § 11 .9 is th e on ly

se ct io n of th e Trus t th at ex pr es sl y co nc ern s li ti ga ti on ag ai ns t th e Trus te es

. Und er th e

pl ai n la ng ua ge of t h e Tr u s t, § 11 .9 is bo th th e on ly se ct io n co nc ern in g li ti ga ti on

ag ai ns t a tru st ee an d th e on ly se ct io n co nc ern in g li ti ga ti on ag ai ns t a tru st ee in st it ut ed

by a be ne fic ia ry or pa rti ci pa nt

. Mo reo v e r

, gi ve n th at th e ex pe ns e of de fen di ng th e

Mar y la nd su it aro se be cau se of th e ap pe ll an ts ’ act io ns

, it fo ll ows th at th e ap pe ll an ts

-7

-sh ou ld be ar th a t ex pe ns e rat he r th an th e ot he r be ne fic ia rie s. See Geo rg e Glea so n

B o g e r t

, et al

., The Law Of Trus ts And Trus te es § 80 2 (“ If an act of on e of th e

be ne fic ia rie s ga ve ris e to th e ne ces si ty fo r th e ex pe nd it ur e, or he wil l ob ta in th e so le

or pr in ci pa l be ne fit fro m it

, th e tru st ee m ay reas on ab ly pl ace t h e b u r d e n of th e

ex pe ns e u po n h im .”).

Und er Io wa la w, th e te rm s of th e Trus t are co nt ro ll in g. Io wa Co d e A n n

.

§ 63 3A.1 10 5. Here, “ ut il iz in g th e or di na ry an d us ua l m ean in g of th e wor ds in cl ud ed ”

in th e Trus t, th e cu rr e n t s i t u a t i o n is ex pr es sl y pr ov id ed fo r. See In re St ei nb erg

Fam il y Liv in g Tr., 89 4 N.W .2d at 46 8. As su ch

, we are bo un d by th e la ng ua ge of th e

Trus t to co nc lu de th at th e “ Part ic ip an t who se in te res t is in is su e,” Trus t § 11 .9, sh ou ld

be ar the co st s of the su it

. See Han rah an v. Kru id en ie r, 47 3 N.W .2d 18 4, 18 9 (Iowa

19 91 ) (“ W e ag ree wit h th e tri al co ur t th at i n e q u i t y th e [le ga l] ex pe ns es sh ou ld be

pa id fro m th e tru st [b ecau se th e]

. . . pa y m en ts were ex pr es sl y au th or iz ed in th e tru st

ag reem en t.”) ; Bo ge rt, et al

., su pr a, § 80 2 (“ The se tt lo r m ay m ak e pr ov is io ns as to th e

so ur ce or so ur ces fro m whi ch th e tru st ee sh ou ld pa y e x p e n s e s a n d th es e wil l be

co nt ro ll in g.” ).

B.

T he ap pell an ts ne xt arg ue th at th e Trus te es br each ed fid uc ia ry du ti es w he n the y

(1 ) tra ns ferr ed th e ap pe ll an ts ’ fu nd s to Life In ve st or s t h ereb y gi vi ng Life In ve st or s

a n i n t e r e s t in Trus t as se ts

, (2 ) de pr iv ed th e ap pe ll an ts of a ve st ed in te res t in Tru s t

as se ts , and (3) fai le d t o p ro vi de ad va nc e n ot ic e p rio r to tra ns ferr in g t he fun ds

.

The fir st two all eg ed bre ach es ari se ou t o f Tru st § 1 4.3 , whi ch st at es :

Exc ep t as pr ov id ed in Arti cl e VII, no pr ov is io n of th e Pl an or Trus t sh al l

ei th er di rect ly or in di rect ly op erat e to gi ve th e Part ic ip at in g Co m pa ni es

an y in te res t wh a t s o e v e r in an y fu nd s or pr op ert y he ld by th e Trus te es

-8

-un de r th e te rm s of th is Trus t, or to de pr iv e an y Part ic ip an t or be ne fic ia ry

of hi s ves te d in te res t in th e Trus t as it is th en co ns ti tu te d, no r sh al l any

su ch pr ov is io n cau se an y pa rt of th e in co m e or co rp us of th e Trus t to be

us ed fo r, or di ve rte d to

, pu rp os es ot he r th an fo r th e ex cl us iv e be ne fit of

th e Par ti ci pa nt s o r th ei r be ne fic ia rie s.

The su cces s of th is arg um en t th eref or e tu rn s on whe th er ap pl ic at io n of § 11 .9 in th is

cas e gi ve s Life In ve st or s an “ in te res t” in Trus t pr oc eed s an d whe th er th e ap pe ll an ts ’

in te res ts were “ ve st ed ” at th e ti m e o f th e tr an sf er.

Sect io n 11 .9 do es no t op erat e to gi ve Life In ve st or s an y in te res t in Trus t as se ts

or pr oc eed s. An “ in te res t” is “ [a] le ga l sh are in so m et hi ng ; a l l o r p a r t of a le ga l or

eq ui ta bl e cl ai m to or rig ht in pro pe rty.” In te res t, Bl ack ’s La w Di ct io na ry (1 0t h ed

.

20 14 ). Und er th e pl ai n la ng ua ge of Trus t § 11 .9, th e Trus te es are gi ve n th e ab il it y to

ch arg e le ga l ex pe ns es di rect ly to a pa rty who br in gs an un su cces sf ul la wsu it ag ai ns t

th e Trus te es

. Tha t th e Trus te e s th en ta ke m on ey reco ve red un de r § 11 .9 an d

rei m bu rs e Life In ve st o r s do es no t ch an ge th e res ul t, an d th e ap pe ll an ts ad va nc e no

pr eced en t req ui rin g a di ffer en t ou tc om e. Trus t § 11 .9 crea te s th e “ in te res t” in fav or

of th e Trus te es , a nd no th in g in th e Trus t g r a n t s to Life In ve st or s a le ga l rig ht to , o r

in te res t i n, Tru st ass et s.

Nex t, th e ap pe ll an ts were no t de pr iv ed of th ei r ve st ed in te res ts in Trus t as se ts

.

The ap pe ll an ts as se rt th at “ whe n th e va lu e of th e pa rti ci pa nt ’s acco un ts be co m es

10 0% ve st ed to hi m

, th e pa rti ci pa nt ’s in te res t in n e t Trus t Ass et s be co m es by la w

fix ed

, se tt le d, an d ab so lu te an d no t su bjec t to be in g de feat ed or ch a n g e d.”

App el la nt s’ Br. 38

. In su pp or t of th is cl ai m

, th e ap pe ll an ts po in t to Trus t § 4.2

, whi ch

st at es th at th e va lu e of a pa rti ci pa nt ’s co nt rib ut io ns to th e Trus t is 10 0% ve st ed to th e

pa rti c i p a n t

. The ap pe ll ees res po nd th at th e ap pe ll an ts ’ in te res ts were on ly 10 0%

v e s t e d w it h res pe ct to ne t Trus t as se ts —wh ic h are th os e as se ts rem ai ni ng aft er

acco un ti ng fo r an y li ab i l i t i e s o f th e pa rti ci pa nt s. Onc e th e ap pe ll an ts lo st th e

Mar y la nd su it

, a li ab il it y was cr e at ed as § 11 .9 op erat ed to im po se a li en on th e

-9

-ap pe ll an ts ’ acco un ts in th e am ou nt of th e at to rn ey ’s fees in cu rred by th e Trus te es in

de fen di ng th e act io n.

The ap pe ll ees ’ in te rp ret at io n is m or e tru e to th e pl a i n l a n g u a ge of th e Trus t

be cau se th e ap pe ll an ts fai l to ap pr eci at e th e si gn ifi can ce of the fin al cl au se of Trus t

§ 4.2 , wh ic h li m it s ve st in g “ su bjec t to th e res tri ct io ns of Sect io n 8.7 .” Sect io n 8.7

,

in tu rn

, pr ov id es th at “ no di st rib ut io n s h a l l b e made to a Part ic ip an t whi le th ere

rem ai ns an y in de bt ed ne ss

. . . of th e Part ic ip a nt to a Part ic ip at in g Co m pa ny.” An

in te res t is ve st ed on ly whe re “ th e rig ht to it s en joy m en t, ei th er pr es en t or fu tu re, is no t

su bjec t to th e ha pp en in g of a co nd it io n pr eced en t.” Ves te d In te res t, Bl ack ’s Law

Dict io na ry (1 0t h ed

. 20 14 ); se e al so Edwo rth y v. Io wa Sav

. & Loa n Ass ’n, 86 N.W

.

31 5, 31 6 (Io wa 19 01 ) (“ A ve st ed rig ht is an im m ed ia te fix ed rig ht of pr es en t or fu tu re

en joy m en t.”)

. The ap pe ll an ts owe d m on ey to th e Trus te es

. Und er th e pl ai n la ng ua ge

of th e Trus t, th e § 8.7 li m it at io n m ak es th e ve st in g of th e ap pe ll an ts ’ in te res ts in th ei r

acco un t fu nd s co nt in ge nt on sa ti sf y in g th at de bt

. C f

. I n re Lun t, 16 N.W .2d 25 , 3 2

(Io wa 19 44 ) (h ol di ng th at be ne fic ia ry ’s in te res t in tru st as se ts was pr op erl y ch arg ed

i n t h e a mo u nt of a fo recl os ed de bt whe re th e lo an was m ad e at th e req ue st of t h a t

be ne fic ia ry ).

F i n a l l y

, th e ap pe ll an ts arg ue th at th e Trus te es br each ed a fid uc ia ry du ty b y

f a i l i n g t o pr ov id e no ti ce to th e ap pe ll an ts pr io r to de du ct in g th e fu nd s fro m th ei r

acco un ts

. As the ir so le Io wa au th or it y fo r th is ass ert io n, t he ap pe ll an ts cla im th at a

“ be ne fic ia ry is en ti tl ed to ad eq ua te in fo rm at io n reg ard in g th e tru st

, i.e.

, wha t th e tru st

is an d ho w th e tru st ee ha s de al t wit h it .” Sch il db erg v. Sch il db erg

, 46 1 N.W .2d 18 6,

19 1 (Io wa 19 90 ). Bu t, as we read it

, th is cas e do es no t im po se a du ty on a tru st ee to

i n f or m a be ne fic ia ry of th e en fo rcem en t of pr ov is io ns fo un d in th e tru st do cu men t

i ts el f. Cf. Max a v. Jo hn Ald en Life In s. Co

., 97 2 F.2 d 98 0, 98 6 (8 th Ci r. 1 9 9 2 )

(“ [T]his Co ur t do es no t co ns tru e ERISA or th e reg ul at io ns un de r it to req ui re th at th e

ap pe ll ee ha d a du ty in di vi du al ly to warn

, up on th ei r si xt y -fi fth bi rth da y s, each an d al l

of th e m em

be rs of th e pl an s whi c h i t i n su red th at th ei r be ne fit s wou ld be red uc ed

-1 0-a c c o r d in g to th e pl an ’s co or di na ti on of be ne fit s pr ov is io n un le ss th ey en ro ll ed i n

Med ic are.” ). In st ead

, Sch il db erg is co n c e r n e d wit h whe th er a tru st ee sh ou ld be

rem ov ed fo r fai li ng to pr ov id e a y earl y acco un ti ng of th e tru st

. 46 1 N.W .2d at 19 0-

91 . The app el la nt s po ss es se d a co py of th e Trus t do cu m en t, and th ey in st ig at ed th e

Mar y la nd la wsu it ag ai ns t th e Trus te es wit h kn owl ed ge th at th ey wou ld be res po ns ib le

fo r th e Trus te es ’ le ga l fees if th e m at te r was de ci de d in fav or of th e Trus te es

. In th e

ab se nc e of Io wa a ut ho rit y im po si ng th e ad di ti on al du ty th e ap pe ll an ts de m an d, we

be li ev e th e te rm s o f th e Tru st it se lf p ro vi de d s uf fic ie nt no ti ce.

C.

In th ei r fin al arg um en ts

, th e ap pe ll an ts co nt en d th at th ere is an is su e of m at eri al

fact as to th e reas on ab le ne ss of th e at to rn ey ’s fees an d th at Life In ve st or s co m m it te d

th e to rt o f co nv ers io n.

Th e r e i s n o m at eri al di sp ut e as to th e reas on ab le ne ss of th e at to rn ey ’s fee s

be cau se th e ap pe ll an ts fai le d to ch al le ng e th e fees be lo w. The ap pe ll an ts arg ue th at

th ey co ul d no t in cl ud e th is al le ga ti on in th ei r co m pl ai nt be cau se th ey di d no t kn ow

th e va lu e of th e le ga l se rv ic es un ti l Ja nu ary of 20 16

. Bu t th is arg um en t is co m pl et el y

refu te d by th ei r am en de d co m pl ai nt —fi le d on Nov em

be r 23

, 20 15 —i n whi ch th ey

rep eat ed ly as se rt th at th e m on ey ta ke n ou t of th ei r acco u n t s w a s to rei m bu rs e Life

In ve st or s fo r th e m on ey it sp en t de fen di n g t h e M arylan d la wsu it

. The refo re, as a

fact ua l mat t e r

, th e ap pe ll an ts kn ew th at th e fees were at le as t $4 31 ,91 9.0 0 be cau se

th at is th e am ou nt th at was ch arg ed to th ei r acco un ts

. The ap pe ll an ts —as th e

pl a i n t iff s in th is act io n— ha d th e bu rd en of ch al le ng in g th e fees if th ey wis he d to

pu rs ue th at cl ai m

. See Fed

. R. Ci v. P. 8 ( a ) ( 3 ) ( “A pl ead in g th at st at es a cl ai m fo r

rel ie f m us t co nt ai n

. . . a de m an d fo r th e rel ie f so ug ht

, whi ch m ay in cl ud e rel ie f in th e

al te rn at iv e or di ffer en t types of rel ie f.”). W hi le th e ap pe ll an ts ’ co m pl ai nt ve he m en tl y

co nt es ts th e m ean s by w h i c h t h e Trus te es acq ui red th e m on ey

, no whe re do th e

ap pe ll an ts cla im

th at th e am ou nt was u nr eas on ab le

.

-1 1-Fi na ll y

, th e ap pe ll an ts cl ai m fo r co nv ers io n fai ls

. “ Co nv ers io n is th e wro ng fu l

co nt ro l or do m in io n ov er an ot he r’s pr op ert y co nt rary to th at pe rs on ’s po ss es so ry rig ht

to th e pr op ert y .” Bl ack fo rd v. Pra i r i e Mea do ws Rac et rack & Cas in o, In c., 77 8

N.W .2d 1 8 4

, 1 8 8 (Io wa 20 10 ) (in te rn al qu ot at io n m ark s om it te d)

. “ The es se nt ia l

el em en ts of co nv ers io n are: 1) own ers hi p by th e pl ai nt iff or ot he r po ss es so ry rig ht in

th e pl ai nt iff gr eat er th an th at of th e de fen da nt ; 2) ex erci se of do m in io n or co nt ro l ov er

ch at te ls by defen da nt in co ns is te nt wit h, an d in de ro ga ti on of, p la in ti ff’s p os se ss or y

rig ht s th eret o; a n d 3) da m ag e to pl ai nt iff .” In re Est at e of Bea rb owe r, 42 6 N.W .2d

39 2, 3 94 n.1 (Io wa 19 88 ). The ap pe ll an ts ’ arg um en t o n t hi s p oi nt de pe nd s en ti rel y

on th is co ur t’s fin di ng th at th ei r in te res ts w e r e i nd efea si bl y ve st ed at th e ti m e th e

Trus te es acq ui red th e fu nd s. As st at ed ab ov e, ho wev er, ap pe ll an ts ’ i n t eres ts were

su bjec t t o t h e t e r ms of § 11 .9, so th ey are un ab le to pr ov e th e fir st el em en t of th ei r

co nv ers io n c la im

.

III. Co nc lu si on

Fo r th e rea so ns ab ov e, we affi rm th e d is tri ct co ur t.

__ __ __ __ __ __ __ __ __ __ __ __ __ __ __

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